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Will We Finally Have a la Carte T.V. Content?

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7 Responses

  1. TJ says:

    Megan McArdle has made a great point about what you are saying here that bears repeating. We might very well see the end of cable and a move to a la carte pricing, but it will almost certainly not lower the cost for consumers overall. The implicit premise of your post–that unbundling will reduce costs for consumers (seen quite clearly in statements like “College students forgo cable fees, because they are so damn expensive and carry mainly crap they don’t want.”)–is dead wrong.

    The key to understand is that content is basically a fixed cost. Say that a hit show (e.g. Friends) costs $100 to produce. Say also that the cable service also has 100 other shows that each cost $1 to produce. Finally, say that there are 100 consumers, each of whom watches two shows: Friends, plus their own esoteric taste of one other show.

    Right now, in a bundled service, the cable company charges each consumer $2 and offers each consumer unlimited access to ALL the shows. If we move to a la carte pricing model en masse, each consumer now gets only TWO shows (Friends, plus the other show they watch), and the total price they will pay will be: $2. The content providers cannot charge less, because they must ultimately get $200 in revenue from consumers to cover the costs of producing the content.

    To say again, you may very well be right that we are moving to unbundling. But lets not entertain any illusions that this will somehow reduce your bill.

  2. Deven Desai says:

    Dear TJ,

    Let’s perhaps not assume what you assume. My explicit premise is that a la carte, or direct relationships between consumers and content producers will grow. I do not assume costs will drop because of that. I said that students forgo the cable fees, because they can. So that was not clear as a lower cost in the long run. Now had you pointed to my examples of friends leaving cable subscriptions, that would have been a cost argument. And note they are in fact seeing the drop. They pay less overall to a cable company, a few subscriptions, and get the content they want. I think you may be arguing that all you can eat is better. If so, in some ways, you may be correct. But there is an ongoing discussion about price discrimination versus bundled goods. And I think you conflate the production model. Cable is not making the show. Cable does not make Friends. Cable carries shows. (Note that DirectTV is now creating content).

    All that being said, will overall a la carte pricing save consumers’ money? McCardle is possibly correct. One should expect that someone will extract value in a new model and that consumers may not get that value is quite plausible, but defining value is the key.

    Regarding fixed costs, you are onto to something but a friend pointed me to the idea I think you are trying to get to. Mathew Yglesias said “Cable’s not like that. Once the cable company has built the infrastructure to deliver cable to your house and given you the box, it doesn’t cost them any more money to give you 100 channels rather than 10. To be sure, building infrastructure capable of delivering more channels costs more money. But once the infrastructure’s built, it can deliver what it can deliver and there are no incremental savings to achieve by not using all the capacity. I think it’s completely true that cable television has become a questionable value proposition—it’s extremely expensive and though the infrastructure to deliver hundreds of channels to the home is impressive, it’s not actually useful since nobody watches that many channels. What we actually need is faster broadband internet. But the infrastructure’s already built. Refusing to use it doesn’t reduce the suppliers’ costs and wouldn’t save customers any money.”

    To which I responded “I think I am saying that as more people get around cable with Internet provision for content, cable will have to change. The trick is that cable also is the main internet provider, so it has the ability to thwart the move (the throttling, data limits etc.). The big hurdles you point to are eroding a little more is what I am saying. I think that consumers will press for the model of “I paid once, I want many formats.” Of course books have yet to get to that point. But I wonder how much longer market segmentation will be viable.”

  3. TJ says:

    Devin,

    Perhaps I am misreading statements like “Lower cost is clear.” If your point is only that direct relationships between consumers and content providers will grow without the intermediary of a cable service, I share that prediction. And I don’t even think it is necessarily a bad thing; I just don’t see a particular reason to think it is a good thing. So if the predicate for your claim is not lowered costs, then what is it?

    As for cable services not making the shows, that is a nit; the basic point holds if you go channel-by-channel instead of show-by-show. What I am arguing against is (what I took to be) your point that cable consumers are paying “crap they don’t want,” which is a fundamental but widespread misconception. What we have is a situation where 50 jocks and 50 nerds each pay $100 for an all-you-can-eat cable that includes both ESPN and the Sci Fi channel. Each of them are seething because they think that if they could only buy the channel they want, they would be paying $50. But that is not correct, for exactly the mathematical reason I outlined in my prior comment. If you unbundled the service, each channel will now be priced at $100 by itself.

    In short, cable consumers are paying for exactly what they want. They are then getting a bunch of additional zero-marginal-cost content–i.e. the crap they don’t want–for free.

  4. A.J. Sutter says:

    You don’t address the issue of what sort of content will be produced as a result of a la carte pricing. You can probably kiss the esoteric shows goodbye, once their first season or two are no longer being subsidized by a bundled service such as TJ describes. As happened in American publishing, when you atomize profit centers, the intellectually demanding fare falls by the wayside.

    Compare that to publishing cultures like Germany, where publishers feel a social responsibility to keep Nobel literature laureates in print despite losing money on their books, or France, which has a huge array of small publishing houses. And in fact, compare it to the US in the 1960s, when Nobel laureates were often on the NY Times fiction best-seller list and in mass-market paperback. You may win your bet, because Americans believe that they’re entitled to “choice” and low price at the same time. But is the intensified coupling of panem et circenses with profit maximization really so cool as you seem to envision? Or can you make a concrete proposal for how creative but not-necessarily-crowd-pleasing fare with higher-than-shoestring production costs can survive a move to a la carte? (Not that it’s so thick on the ground even under the present system.)

  5. Deven Desai says:

    TJ,

    I disagree that it is a nit. Production and distribution of content are different. But I see what you are getting at. I am not sure that the cost would be $100 for each. If you have more here, I’d be grateful. I think that you may be getting at the perfect price discrimination issue. If so, yes, it could be that the jock will end up paying the full amount for just the sports and then think “Crap! I might as well have gotten the other stuff.” As for predicates, I am not sure what you are asking. I make a descriptive point that I think there is a shift to get away from cable and have more options to access content in these new ways. Whether that will be an overall better outcome is where you seem to be headed. Good point but I am not sure either way as yet. AJ’s related issue about producing a range of content is indeed not one I address. But it is part of the area. The Red Lion scarcity world and the publishing world where bundling allowed for niche or not necessarily what the masses want content just seems to be dying. Would it be great to find ways for that material to survive? Sure. I do not claim to know how that will happen. I think one possible thing would be niche fans subscribing to that content and that lower distribution may allow that work to be created for the subscribers and then it moves to the rest with ads. But many things must fall into place for that world to work, and it may be that the nature of content still will defeat that. As Aj notes, high quality content is not really all around right now. But who decides and how the system will foster that is a much bigger question. If we can get beyond pure market metrics that would be a start but I can’t say I’d bet that will happen.

  6. Deven Desai says:

    Coincidence: NBR on PBS had a short report on the move away from TV screens to other modes of watching

    .

  7. I don’t have cable .. or anything else. My television is sitting in the garage. It’s been there for two years. I found that paying $50 a month for all these channels .. and I only wanted to watch a handful just irritated me to the point I canceled my cable. I want what I want. If I want to watch a movie then I can stream it from Amazon. I am willing to pay for the things I want to see .. I am NOT willing to pay for all the other crap. If that means that ultimately I get left out .. fine.